EA Moves On Competition Welcome, But Unworkable

Octopus Energy NZ welcomes the Electricity Authority’s acknowledgement that the current wholesale electricity market rules allow discrimination against independent retailers, but warns the solutions proposed are unlikely to change behaviour.

“The EA’s report clearly acknowledges the issue of the big four gentailers discriminating between their own retail operations and independent rivals which has stifled competition,” Octopus Energy NZ chief operations officer Margaret Cooney says.

“We also agree with the EA that confidence in the market underpins healthy competition, which ultimately impacts households and businesses. As Energy Minister Simon Watts said today, “currently the large power companies can cross subsidise themselves because they both produce energy and sell it”. This has squeezed out competition. Current market settings are not working properly.

“However the proposals announced by the EA are unlikely to be workable - principles are effectively a statement of what should be happening, but on their own they will not stop bad behaviour.

“The risk management practices of large electricity generators are complex and opaque, which the EA acknowledges makes it hard to determine when market power is being exercised.

“Without vast monitoring resources, which the EA does not currently possess, it is unlikely the regulator will know whether the four former state-owned gentailers are adhering to its proposed new rules.

“The timeline for change is also disappointing, with rule changes unlikely to be in place until at least midway through next year, meaning any possible action on discriminatory behaviour unlikely until 2027. The EA does have urgent code making powers that it can use.

“This is a peacetime approach appropriate when conditions are benign, not at a time when supply shortages are leading to deindustrialisation of the economy and households facing ongoing cost of living pressures from rising energy costs.

“We know the Government is planning policy changes for the electricity sector, with Mr Watts promising ‘surgical interventions’ to improve competition in the sector.

“Today’s acknowledgement of the problem in the wholesale markets demonstrates the need for a transparent solution: requiring arms-length operation of the retail and generation businesses, with separate management teams required to operate the businesses as if they were individual companies. This would make conduct transparent and easier for the EA to monitor, while providing the basis for genuine confidence in the functioning of the wholesale market.”

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